Saturday, May 20, 2017

Course Corrections

About a week ago, I was listening to a wonderful friend of mine, Heidi, talking about Amelia Earhart. Out of the blue, right in the midst of those thoughts, she burst into song, singing part of this song a cappella:

The lyrics of this song, Amelia Earhart’s Last Flight, go something like this, depending on the version:

A ship out on the ocean, just a speck against the sky,
Amelia Earhart flying that sad day;
With her partner, Captain Noonan, on the second of July
Her plane fell in the ocean, far away.

There’s a beautiful, beautiful field
Far away in a land that is fair.
Happy landings to you, Amelia Earhart
Farewell, first lady of the air.

She radioed position and she said that all was well,
Although the fuel within the tanks was low.
But they’d land on Howland Island to refuel her monoplane,
Then on their trip around the world they’d go.

Well, a half an hour later an SOS was heard,
The signal weak, but still her voice was brave.
Oh, in shark-infested waters her plane went down that night
In the blue Pacific to a watery grave.

Well, now you have heard my story of that awful tragedy,
We pray that she might fly home safe again.
Oh, in years to come though others blaze a trail across the sea,
We’ll ne’er forget Amelia and her plane.

There’s a beautiful, beautiful field
Far away in a land that is fair.
Happy landings to you, Amelia Earhart
Farewell, first lady of the air.

On her last flight, it was pretty clear that Amelia Earhart didn’t know where she was for certain, and thus when she entered a course correction, it took her even further off course. She was looking for Howland Island but, wherever her plane wound up, it was nowhere near that island as the vicinity has been thoroughly searched for any sign of her crash.

Heidi’s point in singing this song – and she always has a point, even if it takes her a while to get around to it – was to emphasize the idea of course corrections. As she put it so well, a course correction in the wrong direction makes things even worse than before, so a course correction is useless if you don’t know where you are.

It’s a beautiful way of looking at things, but it might not make perfect sense at first glance, so let me use an example.

When I first started my career, I took an assessment of where I was in my career and concluded that I needed to build a strong professional network and strong resume going forward in order to maximize my job options. That makes sense on paper, right?

The problem was that I didn’t really have my career figured out in the big scheme of things. My career path was fairly set in stone unless I went back to school for more education, but I was strongly resistant to that idea. I had student loans and didn’t want any more. I wanted badly to get on with my “adult life.”

What I should have focused on at that point in my life is leveraging the job I had to get a masters degree and even a doctorate. I was in a great position to do this and doing so would have set me up for a marvelous career going forward at a very low cost. I should have waited a little while to have children and then I would have been perfectly set up for the stable life that I dreamed of.

Instead, I was looking off in a different direction for those big things that I wanted. I wanted to have a family and a house, but I thought that what was keeping me from it was a lack of a professional network. I didn’t see my debt as an obstacle. I didn’t see the limitations of my career path with the degree that I had as an obstacle. Instead, I saw something as a huge obstacle that wasn’t an obstacle at all.

I was like Amelia Earhart on her final flight, in other words. I was going along a course that already wasn’t quite right, and I was about to make a course correction that made things even worse.

I threw lots of money and effort into building professional relationships. I didn’t put any effort into furthering my education. That came from a lack of understanding of my career.

I didn’t put money away for the future. Instead, I threw lots of money into impressing others. That came from a lack of understanding of my financial state.

I chose to have children right away, not understanding the huge time and money cost that they would bring. That came from a lack of understanding of what it took to be a parent.

I knew what my destination was. I wanted to have a thoughtful career that paid well, with a few kids and a house and a great marriage with my lifelong love. I did eventually wind up there, but I did it by landing on a completely different island that I happened to stumble upon. The truth of the matter is that my course corrections actually sent me out in the middle of nowhere, far from my intended destination, and by all rights I should have just crashed in the ocean; it was only through sheer luck and a stubborn work ethic that I did not.

My original flight plan was a few degrees off of where I should have been headed. When I saw it was going awry, I jumped in with some hasty course corrections and adjusted by a few degrees in the wrong direction. In short, I put myself in a position where I was headed for a disaster.

Here’s the reality: making changes to your life can be a great thing, but you have to make sure of where you’re at and where you want to be headed or else you’re likely to just make things worse.

This really breaks down into two distinct areas: making sure you know where you’re at and making sure your course corrections actually point you to where you want to go. Let’s take a look.

Figure Out Where You Are

If you’re thinking about making changes to your life, the first step in that process is to really step back and get an understanding of where exactly you are in your life. Quite often, that desire to make changes comes from a sense that something isn’t right in your life and that you’re not really heading anywhere worthwhile. Your gut feeling is probably right, but your sense of what exactly is wrong might not necessarily be right.

In other words, that moment where you feel like things aren’t going in the right direction is the exact moment when you should step back and do a serious and honest life evaluation. You need to step back and carefully evaluate your life in every dimension to figure out what’s good, what’s bad, and what’s ugly, what things are vital and what things need to change.

There are infinite things you can do for a self-evaluation of your life. What follows is a really straightforward method I use for self-evaluation; it’s something I do every several months just to make sure I am where I think I am.

The first thing I do is make a list of everything that’s important to me. I just think about my life, ask myself what’s actually important, and then write it down. It might be specific people or things like “immediate family” or things like self-improvement or a particular hobby or fitness or whatever. Just write down things that are important to you.

Now, trim those things down to five things. Start crossing off things. I find it’s easier to simply ask myself if there are five other things on the list that are more important to me than this. If there is, then I cross it off. You can always devote a little time and energy to those things, but they should be strongly secondary to the five core things.

I recommend that those things be centered around different areas of your life. You shouldn’t list just five hobbies or five family members (my wife, my oldest child, my second oldest child, etc.) or five physical attributes (my glutes, my abs, my face, etc.). Try to cover as many of the spheres of your life as possible – physical, mental, social, professional, familial, personal, spiritual. You don’t have to cover all of these, but you shouldn’t have the most important things all stacked up in one sphere or else you’ll find yourself with a very unbalanced life that feels empty in many areas.

Once you have those five things, evaluate your current state in each one of those things carefully. Are you happy with your current state regarding those things? Are you in a good place with each of those things?

You should also consider the foundations upon which those things rest. Are your finances in healthy shape? You can do that by taking a basic financial assessment, calculating your net worth and making sure that you’re spending less than you earn each month. If you’re married, is your marriage strong? If you’re employed, is your employment strong?

I usually find that getting a second viewpoint on those key things is worthwhile. I’ll talk to my wife about how she thinks our marriage is going. I’ll talk to my mentor or my supervisor about how my job is going right now. I’ll ask my trusted friends for their impression of specific aspects of my character. If I don’t have anyone to talk to about something, I’ll talk to a very close friend about it and lay out everything that I can.

I find that my perspective on those things is usually tweaked a little bit by those key conversations. Almost always, I don’t have a perfect understanding of where I’m at with the most important things in my life, and talking to those key players will often clue me in to where I’m awry. This is the basis of a bit of course correction, but we’ll get to that in a minute. Don’t sweat it if you find that your conversations with others point out ways in which you’re not where you thought you were. Almost no one is.

Take all of this together and use it as the basis for understanding where things are at in your life in all spheres – physical, mental, spiritual, professional, social, romantic, familial, and financial. Those things are often very intertwined, so don’t buy into the idea that you can really assess one area without even considering the other.

Figure Out Where You Want To Be

Knowing your current situation is valuable, but it’s much like the equivalent of having a single dot on a piece of paper. You can’t draw a line that leads anywhere without another dot to connect to. That other dot is your destination.

Where do you want to be in five years? Ten years? Twenty years? Those aren’t easy questions, either. Many people have a vague sense of the life that they want at that point and may even have it as some kind of goal, but it’s often not a truly meaningful or clearly stated thing. It’s just kind of nebulous and “out there.”

The thing is, even if you know where you are and know vaguely where you want to go, you can still course correct in the wrong direction. You can still end up with a financial and professional and personal life that’s going to a place that you just don’t want to go.

I suggest, then, starting off with a five year plan for your life. All that means is that you sit down and think about each major area of your life – physical, mental, spiritual, professional, social, romantic, familial, and financial, just like above – and sketch out what you want to have in those areas in five years. As you’re doing this, keep in mind the five most important areas you set for yourself above in terms of what’s important to you in your life, as well as the things upon which those important areas rely (like your finances).

I’ll give you an example, using myself.

Physical: I want to have a weight that’s close to average for someone of my height. I want to be in a little better physical shape, but I’m not really interested in being an “athlete,” just healthy enough to go on interesting hikes and keep up with my kids.

Mental: I want to learn tons of new things and have a sense that I’m learning meaningful new things every day.

Spiritual: I want to have a greater understanding of the major religions and philosophies of the world and what they say about the meaning of life and how to live a good life. I want to participate in a group that reflects on such things, even if it focuses on one particular religion or philosophical tradition.

Professional: I want to keep writing as I am now – reliable and consistent, with an earnest tone. I want to build some free “beginner” courses to supplement and organize what’s on The Simple Dollar, making it easier for people to dip into the years of archives of quality material on the site.

Social: I want to build up many of the friendships that I have into something stronger. I feel like I already have a healthy number of good friendships and acquaintances, but I’d like to strengthen those relationships and maybe add some more on the periphery, in the sense that I have better connections to the community I live in.

Romantic/Marital: I want to be by Sarah’s side through all of the ups and downs that life will bring us. This, of course, means constant “care and feeding” of our marriage.

Parental: I want to guide my children into adolescence and toward adulthood. I want to react to their changes with thoughtfulness and conversation rather than confrontation, and that takes time and patience.

Financial: I want to continue to walk the path to financial independence and perhaps accelerate it a little by cutting out some of our expenses. I want to make sure I’m saving for every major future expense I see coming down the road – college education for my children (for which we intend to pay for part of it), financial independence / early retirement, replacements for our current vehicles.

Those are my destinations in the major areas in my life. When I pair them up with where I’m truthfully at in the major areas of my life, I can now see two dots on that paper. Now, let’s connect the dots.

Figure Out Your Course Corrections

You know where you are, because you’ve done some self-assessment. You know where you want to go, because you’ve done some long-term visioning. Now it’s time to connect the two, and that means course correction.

Most likely, if you continue to do the same things you’ve been doing every day, you’re not going to march straight to that destination you just envisioned. If you continue to eat lots of extra calories every day, you’re not going to hit your target weight. If you continue to fluff off at work and get mediocre job reviews, you’re not going to get a promotion. You get the picture.

You know where you are in terms of the foundations of your life – the five things most important to you and the foundations upon which they rest. You know where you want to go in the major areas of your life. What do you need to do to get from here to there? That’s the key question.

Go through each of those destinations you set for yourself. Think about where you are today. Ask yourself what exactly needs to be done to get from here to there.

For each of those destinations that will require you to do something significantly different in your life than what you’re doing now, start plotting that course correction. Don’t worry as much about the big picture of what needs to change. Instead, focus on what needs to change in your day-to-day life to make that big picture change a foregone conclusion.

For example, if I want to lose weight and reach a lower sustainable body weight, what I really need to do is to focus on eating less each day in a sustainable way so that when I reach that weight, I can easily do it automatically. How do I do that? Some homework is in order, but the basic recipe is to figure out how many calories per day I would eat to maintain that target weight, subtract a little bit from that, and then start counting calories carefully and making sure I hit that target every day.

If I want to turn my financial life around and reach a financial milestone in five years – let’s say it’s debt freedom – I definitely need a debt repayment plan, but I also need a daily focus on not spending money on unnecessary things. A good way to do this is to establish a weekly or monthly budget for non-essential items, which means that everything that isn’t an absolutely essential purchase like a bill or a basic food item comes out of that “fun” budget. That includes things like a morning coffee or a book from the bookstore or a new game.

When you’re course correcting, focus on sustainable daily changes, things that you can do virtually every day as part of a normal routine. If you find that you don’t have time for something new that will take up some time, look at how you spend time right now and trim out some of the unimportant stuff. Start by turning off the television or the smartphone or the laptop, as those things just gobble the hours.

Remember, a course correction is usually just a relatively minor shift in direction. You’re not radically rebooting your life. Instead, you’re molding your typical day just a little bit so that your life naturally starts to move toward your destination. If you cut your daily calorie intake by, say, 500 calories, that’s like two fewer sodas a day, but it will lead to a substantial weight loss over time. If you cut your extra spending by putting yourself on a weekly “free spending” budget and stick to it, you’ll find yourself with more and more money for eliminating debt over time. If you cut half an hour out of your television viewing each day and devote it to a Bible or philosophy study, you’ll find yourself growing spiritually without a new time commitment on your hands.

It’s easy. Know where you are. Know where you want to go. Gently correct your course to take you there. It’s the lesson of Amelia Earhart – if you don’t know where you are and can’t define where you want to go, your course corrections won’t really help and will probably make things worse.

What course corrections are you going to start charting today?

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Friday, May 19, 2017

The ‘Repeat Players’

Once a week, I go to a community board game night for several hours. There’s usually about 20 people in attendance with a healthy mix of ages, backgrounds, genders, and game tastes, and there are usually about 10 regulars that consistently show up every week.

One of the big challenges of this group has been that when people get new games, they tend to want to get them to the table. If someone receives an interesting new game for their birthday or for a holiday, for example, they want to bring it to the game night and play it with the other people in the group who are similarly enthusiastic about such games.

This creates an interesting problem of sorts. Often, people will bring new games to the group and see them played perhaps once or twice before someone else brings something new that edges out the previous game. It doesn’t even really matter if the previous game is really interesting and engaging or not.

The reason for that switch is that everyone wants to be polite and allow people to get to play their new games that they’re excited about, but there’s also a layer of simply being interested in trying a new game.

The bad part of this is twofold. One, it means that some really good games only get played a few times before it’s hard to get anyone to play them any more. Two, it means that there’s often a sense that the only time you’re going to get a game of your choosing to the table is if it’s new, which encourages buying and acquisition, which is pretty much in direct opposition to responsible personal finance practices.

While generally the board game nights really do encourage a frugal evening – you can go there and play games all night long for free and there are often snacks shared by people and sometimes even free food – it can also bring forth a trend where people feel like their games aren’t getting played or that they have to buy a new game all the time to “keep up.”

A while back, one of my closest friends from that group sat down with me and we tried to come up with a solution to the problem. Our solution was simple: We started a “repeat players club.”

Four of us simply entered into an agreement that each game night, we would take part in a series of five plays of the same game, once each week for five weeks. The game that would be played repeatedly would be chosen by each of us on a rotating basis, so we could each have a chance to really dig into a game that we really liked that didn’t seem to get to the table very much.

What this essentially does is that it creates more value for some of the better games we already have while also reducing our desire to buy new games. Older games that might have sat in the closet and eventually been traded or taken to Goodwill are now seeing lots of plays, at no additional cost to any of us. Often, that means we start to see interesting nuances in the game that we wouldn’t have picked up with a single play, and we’re all clearly getting better at them, too. At the same time, it cuts into that desire for acquiring new games. Since we’ve started this series, we’ve cut down on our time spent playing new games and that’s actually reduced our desire to bring new games all the time and that has thus reduced our desire to acquire new games all of the time.

We’ve sarcastically started referring to our little sub-group as the “Repeat Players” because it often seems like the same people are repeating the same game.

Here’s the thing, though: This same exact “Repeat Player” phenomenon works with an absolute ton of hobbies, and it offers similar benefits for those hobbies.

Enjoy reading books? Take out one of your favorite novels or favorite nonfiction books or favorite series and reread it again, from the beginning. See what you notice differently this time around. This costs you nothing because you likely already have the series on your shelf or on your Kindle and you know it’s going to be a good experience. You can even turn this into a “book club” where you get together with a few friends and each of you choose a book that’s one of your all-time favorites for a reread, with the others in the club checking out copies from the library.

Enjoy watching movies? Grab one of your all-time favorite films and watch it again. See how the story grabs you, the great performances, the humor, the emotions. Ride that wave again. Even better, have a movie night where you share this film with some of your friends. You might even have a series of movie nights with a circle of your friends where you re-watch favorite films chosen by each of you.

Enjoy watching great drama or comedy series, like Breaking Bad or House of Cards? Fire up one of those series from the beginning and get to binge-watching. See what foreshadowing you can notice or what other little details you overlooked the first time while you ride that tidal wave of excellent drama and storytelling.

Enjoy playing video games? Pull out some of your old classics and play through them from the start. You’ll find that the gameplay holds up in the truly classic games and that those great games offer a ton of nuance in their play that comes out the second time around (or third… or fourth…).

It works well with any hobby. Just invest some time in re-enjoying some of your peak moments from that hobby. Make some of your favorite meals again. Make your favorite home-brew recipe again. Go on your favorite bike trail again.

Not only will you appreciate the greatness of that thing again, you’ll also notice nuances that you didn’t see before. You’ll figure out a character’s motivation. You’ll see a beautiful view off to the right of a trail when you’ve always been looking to the left. You’ll discover a new clever and subtle strategy.

Not only that, the cost of doing this will be nonexistent (or at least very low). Most of the time, this just means pulling something off your shelf that you haven’t picked up in a while, or stopping by the library. You might need a few simple ingredients, but you’re still keeping the costs very low.

Not only that, this practice will somewhat quell your desire to spend more money on new items for that hobby. Your focus will be absorbed by doing things rather than buying things, which means that your money stays in your pocket.

Not only that, this gives you an opportunity to share the cream of your hobby with your friends, particularly those also in the hobby, and it opens their window to sharing their favorite items with you. You can watch your favorite movies together or play your favorite games together or form a book club around your favorite books.

Here’s how you get started.

If you’re going solo, just take a look at the items you already own for your primary hobby – or ones that you have easy access to – and find one of the all-time greats that you’re interested in enjoying again.

For example, as a reader of fantasy novels, I’m considering rereading Steven Erikson’s Malazan Book of the Fallen series again this summer (and probably well into the fall). This will be an entirely solo read. However, I happen to own all of the books already, so there’s no cost involved, and when I’m that deep into a series, I have a reduced interest in acquiring new stuff.

If you’re interested in making this social, pitch the idea to a few close friends. Maybe you’ll just agree to have a weekly “game night” for a while where you play some of your old classics, maybe playing them a few times each. Maybe you’ll do the same with a movie night. Suggest starting up a book club where you each take turns choosing one of your favorite books and everyone reads it together (you’re rereading it, so you can lead conversations).

Remember, the goal in approaches like this is to have fun. If you’re not having fun doing this, then don’t do it. For me, the idea of revisiting a great book is a really enticing thought, as is the entire series of games I’m digging into with the “Repeat Players.”

However, I would suggest that if you’re not having fun with some of the “greatest hits” of your hobby, then perhaps your interest in that particular hobby is waning and you may want to consider whether you need to continue to own all of this hobby stuff. This type of repeat exposure can be a good way to see whether or not your passion for a hobby is on the downhill slide.

This strategy doesn’t mean that your hobby needs to become a string of repeats, however. It just means that the truly worthy experiences of your hobby deserve to be repeated a time or two, and in doing so, you’ll find that the cost of your hobby declines along with some of the initiative to spend money on it.

Good luck!

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Thursday, May 18, 2017

Can A Credit Card Actually Help You Save?

Most people don’t know there’s a really simple way to free up more money for savings — and it doesn’t require making huge lifestyle sacrifices. The trick is to stop throwing money away on interest payments.

Credit card companies are offering really favorable terms on balance transfers right now. Take the Discover it® 18 Month Balance Transfer Offer. It gives you an 18-month 0% intro APR period — one of the longest out there.

If you have decent credit, now’s the best time to put it to work for savings. Bring your credit card interest costs down to zero when you transfer a balance to a new 0% intro APR offer. From there, each payment you make goes directly toward paying down your debt, and not monthly interest. To pay off a $10,000 balance, that would mean savings of $1,000+ in interest in just a year and a half. That’s a nice chunk of cash you can put toward savings instead.

The secret to saving more money is mostly just being smarter about how you spend your money. Cutting out interest payments is one of the easiest (and most painless!) ways to do this. To get you started saving, here’s a simple head-to-head comparison of two of the best balance transfer cards available today.

Discover it® 18 Month Balance Transfer Offer

The Discover it® 18 Month Balance Transfer Offer has the longest 0% intro APR of our top-ranked balance transfer cards. This card also delivers big on cash back rewards for all of the new purchases you make with the card. Earn 5% cash back on quarterly rotating categories, plus 1% cashback on everything else year-round.

But that’s not all. Discover also doubles the cash back you earn during your first year as a cardholder. That means if you earn $200 in cashback, you’ll get another $200 on top of that — that’s $400 total cash back in one year. The more cash back you earn in your first year, the bigger your year-end cash back bonus.

Pros: You get an extra-long 0% Intro APR that lasts 18 months, plus earn 5% cash back on new purchases in rotating categories.

Con: You must pay a balance transfer fee of 3% of your transfer amount or $5, whichever is greater.

Intro Balance Transfer APR
0% for 18 months
Balance Transfer Fee
Regular APR
11.74% – 23.74% Variable
Highlights Card Highlights Provided by Discover:
  • You could turn $200 into $400 with Cashback Match™. Get a dollar-for-dollar match of all the cash back you’ve earned at the end of your first year, automatically.
  • Earn 5% cash back in rotating categories each quarter like gas stations, Amazon.com, restaurants, wholesale clubs and more, up to the quarterly maximum each time you activate. Plus, 1% cash back on all other purchases.
  • Redeem your cash back for any amount, any time. Cash rewards never expire.
  • 100% U.S. based customer service.
  • Get your FICO® Credit Score for free on monthly statements, on mobile and online.
  • No annual fee.
  • Click "APPLY NOW" to see rates, rewards, FICO® Credit Score terms, Cashback Match™ details & other information.

Chase Slate®

Want to avoid the fees associated with a balance transfer? Go with the Chase Slate®. With this card, you can cut out interest payments and transfer your balance for FREE (as long as you do it within the first 60 days of opening the card). The Chase Slate® also has an extended 0% intro APR of 15 months, which means no interest payments until Fall 2018.

Pros: Pay no balance transfer fee (if made within 60 days of account opening), plus get 0% Intro APR for 15 months.

Con: You can’t transfer a balance from another Chase card. Additionally, this card doesn’t include access to a rewards program. If you already have a rewards credit card, we recommend making new purchases on that card — and using the Chase Slate® solely as a debt-elimination tool!

Intro Balance Transfer APR
0% for 15 months
Balance Transfer Fee
Either $5 or 5% of the amount of each transfer, whichever is greater.
Regular APR
15.74% - 24.49% Variable
  • $0 Introductory balance transfer fee for transfers made during the first 60 days of account opening
  • 0% Introductory APR for 15 months on purchases and balance transfers
  • Monthly FICO® Score and Credit Dashboard for free
  • No Penalty APR – Paying late won't raise your interest rate (APR). All other account pricing and terms apply
  • $0 Annual Fee

One thing to keep in mind is that most card issuers won’t allow you to transfer a balance from one of their cards to another (from Chase Freedom® to Chase Slate®, for example). That’s why it pays to know what the best offers are. You’ll maximize your balance transfer savings this way and figure out which card will actually work best for your personal situation.

The Discover it® 18 Month Balance Transfer Offer has the best deal with its extra-long 0% intro APR period, and the Chase Slate® lets you transfer your balances for free during the first 60 days–a huge benefit for savings. You can also check out our full list of the Best Balance Transfer Credit Cards for 2017 to compare other great offers — and find the one that fits your needs best.

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Putting Frugality in Context of a Busy Modern Life

Springtime is incredibly busy around our home. Our children each participate in a spring sport of their choosing (if they want to). They’re also finishing out their school year, which means a number of school activities are on the docket. We usually have family members that come to visit at some point during the month. Sarah’s usually finishing out a teaching year and is also finishing out her masters program. I’m usually trying to get some extra work done so that I can slow down my work pace during the summer and do things like family day trips, family camping trips, and some other projects.

The pace of these months can feel overwhelming, and it’s during those months that I can often feel my focus shifting from a long-term focus to a very short-term one.

During other parts of the year, it’s easy to have a long-term focus. I can think about my day in terms of my long-term goals and initiatives. Sure, there are things that need to be done, but the days don’t all feel overstuffed. I can do things like make lots of meals in advance and freeze them or keep well ahead of household chores or do some long-term financial planning or actually plan out what we’re going to do to handle special events.

When things get busy, however, the focus gets shorter and shorter. Rather than looking at things through the lens of “how do I build a great life,” the focus shifts to “how can I survive this week” or “how can I get this to-do list (mostly) cleaned out today” or “how do I make sure I don’t forget these 15 things that need to be done today.”

Unsurprisingly, when your perspective changes to that sort of short-term viewpoint, the costs and benefits of many choices start to change, as well. Let’s walk through some of these shifts.

Things that reduce your time commitments right now begin to have a premium value. If you can do something that shaves fifteen or thirty minutes out of a tightly-scheduled evening, then it becomes very tempting when you don’t have much time to spare.

Long-term financial and personal goals seem less important because they’re not helping you get through today. Retirement seems a long way off when you’re staring at today’s to-do list and wondering how you can ever possibly get through all of this.

Long-term initiatives fall by the wayside because of the needs of the day. You might have been able to keep up with a resolution for a few months, but when things get chaotic, that long term focus gets kicked to the curb because other short-term demands are filling your space.

Most busy modern lives go through periods like this, and some are perpetually in this “emergency mode.” I’m very glad that our lives seem to calm down a lot in June and July, giving us a chance to “reset,” but sometimes these periods can extend on and on and on without a break.

This brings about one central question, one that’s at the heart of the financial struggles of many Americans: how does a person keep frugality and financial responsibility front and center when their life is so busy? When the realities of your life push you into a short-term perspective, how do you continue to make frugal choices?

It’s something that Sarah and I have struggled with for years. We do find it much easier to remain frugal during the lazy summer months and the quiet winter months. During the spring and the fall, though, things seem to gear up into a crazy level of busy-ness and it becomes so much easier to slip off of our financial track.

While we haven’t achieved perfection at fixing this, our goal is never perfection; our goal is simply to do better than we’ve done in the past. Here are nine strategies we use to keep our long-term financial bearings when things get crazy.

We do a ton of frugal prep work during lazy times. During the winter months, we make a lot of meals and store them in the freezer. Right now, our deep freezer is almost entirely full of prepared meals, though the stock is dwindling. Our pantry is well stocked, too, thanks to careful shopping and planning and buying during the winter lazy months. We have enough food on hand for tons and tons and tons of last-minute fast meals, where we need to get a meal on the table as soon as possible.

We also do a ton of bulk buying during the winter and summer months (remember, those are our “slower” months), so that those big trips to warehouse clubs happen during those times of the year. We buy large quantities of things like toilet paper and shampoo when we find them at the right price and we store them all over the house – in every bathroom, under the kitchen sink, and so on. Our goal with this is to ensure that whenever we need a household supply, we just look under the sink for a quick refill during the busy times and there’s always plenty in there.

We do a ton of gardening prep work in the late winter before things get crazy in the spring so that we can just drop plants in the ground as effortlessly as possible when the weather is right. I do all of our home and car maintenance during the slow times, and push all of the regular maintenance (things that need to be done fairly frequently) right up at the start of a busy period, so late March (for example) sees lots of oil changes and tire rotations and the like.

By pushing as much of our frugal efforts out of the busy times of the year, we manage to “coast” on those frugal efforts when things are much busier. We pull pre-made meals out of the freezer on busy nights. We just look under the sink for the toilet paper that’s magically there. We plop ready-to-go vegetables into the ground to start our garden with minimal time investment. This makes it much easier to stay frugal during the busiest times.

We plan each week together as a family with a great level of detail. Once a week or so, we’ll grab a free half hour when Sarah and I can sit down together and plan out the week. We’ll go through our personal calendars and the academic calendars for the kids and any sports schedules we might have and dump everything out onto a large whiteboard.

This whiteboard lists everything. It has meal plans. It has all scheduled non-professional commitments for everyone in the family (and even some professional ones, if they exist outside of the typical work day). All of this is listed day-by-day in a weeklong calendar.

Then, things like who’s responsible for what are settled. Who is taking our daughter to her goalie practice? Who is going to pick everyone up after the school picnic? Who’s going to get the library books returned? Generally, these are assigned with a “S” or a “T.”

We also use this time to assemble a full meal plan and a grocery list from that meal plan so that a grocery store visit, if needed, becomes really time-efficient and cost-efficient. If we’ve done things right with stocking the pantry, our grocery store visits mostly involve picking up perishable things like fresh produce and milk.

So, how does this help us stay frugal? Our family whiteboard is a form of “mind offloading,” meaning that by writing everything we could possibly need to remember about the week down on the whiteboard, we don’t have to hold that info in our heads. That means that remembering that our oldest son needs a water bottle for Tuesday isn’t something that actively needs to be remembered and stored in our heads.

Instead, we can focus on the task at hand more intensely and be more aware of when we’re making potential missteps. Our minds aren’t as cluttered with all of this stuff. We know what we’re each responsible for and we know who’s taking care of what. An organized mind and an organized life makes it easier to be consciously frugal.

We use “batching” of tasks to make things more efficient. As I mentioned above, one of our most powerful strategies for handling meals during busy times without relying on restaurants or delivery or takeout is to make meals in advance and freeze them. The most effective way of doing that is to prepare them in batches.

We’ll make, say, four pans of lasagna at once, eat one for dinner that night, and freeze the other three. This means that we only have to cook one large pot of lasagna noodles once rather than four smaller pots at four different times. This means that when we’re layering different ingredients in a pan of lasagna, we just have four pans spread out and we make four layers of sauce at once, then four layers of noodles at once, then four layers of spinach at once, and so on, one in each pan.

We try to apply this “batching” in other contexts, too. On weekends, we’ll do several loads of laundry at once, right in a line, and fold and organize clothes for the week for everyone all at once. Doing it this way means that it can all be done in one constant focused rotation of laundry over several hours (squeezing in a few other small tasks during the brief gaps while a load is still drying). We’ll often wait a day and a half before doing dishes, then do all of them at once in one big mass of emptying and refilling an entire dishwasher load (and then sometimes doing it again) rather than rinsing and partially filling and stopping. Whenever there is an opportunity to do a single task in a larger batch less frequently, we tend to do it that way when things are busy.

Why? Well, for one, it frees up time, but the secondary reason is that it saves a little money, too. It ensures that the washer loads and dishwasher loads and dryer loads that we run are full-sized loads, which are more energy efficient and more efficient with soap use, too. When we make meals in bulk, we can buy bulk-sized versions of things like pasta sauce or spinach or other key ingredients, which means the cost per pan goes down. Batching is almost always cheaper than spreading out the chores.

We move tasks to less intense parts of the week whenever possible. If there is any way possible to move tasks away from the most intense times to the less intense times during the week, we’ll take advantage of it. This often enables us to continue to make frugal choices even when time is really tight.

For example, we often rely on our slow cooker this time of the year. The advantage of the slow cooker is that it allows us to move a task – basic meal prep work and cooking – to a less busy time of the day – the morning before work and school rather than the evening. We cook a lot of meals in the slow cooker because of how it lets us move the work to another part of the day.

Often, we’ll fill up both of our vehicles with gas on Sunday, even if they’re not anywhere near empty. This saves us the issue of having to stop at a gas station in the middle of a busy evening later on in the week. It also gives us some more freedom to be selective about where we stop for gas, as I often buy gas at the warehouse club. I’ll also usually air up the tires in those vehicles every few weeks, again on a Sunday, because there’s less time intensity and proper air inflation reduces the chance of an accident and gently improves fuel efficiency.

This brings us to my next point…

We accept that some things will slip for the short term, like having a perfectly clean house. One of the tasks we definitely overlook during the busy parts of the week is having a perfectly clean house. It gets messy, especially near the latter part of the week. We accept that and move on with life.

During the week, I put more emphasis on being smart with my spending than having a perfectly clean house. If I have a choice between making a homemade supper (saves money) or getting a very good night of sleep (more productivity the next day, lower likelihood of illness) versus making sure the living room is picked up on a Thursday evening, I’m going to choose the homemade supper and the good night of sleep.

This is obviously heavily connected to the idea of moving some tasks to less intense times of the week. Housework is among those tasks. Cleaning the car? It’s something that can be moved. Getting back with people on non-urgent matters? It can wait. Anything that is “important but not urgent”? It can slip.

This carries directly forward into actual purchasing decisions…

We simply avoid buying decisions if at all possible. When things are busy, we simply punt as many purchasing decisions as possible down the road. Our spending on hobby-related items slows to a crawl. We generally don’t replace anything around the house unless it’s literally broken and we need to use it in the immediate future. Basically, if it’s a purchase that costs more than a few dollars and isn’t blindingly urgent and actually important, it can wait – and it does wait.

The goal with this policy is to give ourselves enough breathing room to make wise purchasing decisions. In general, purchasing decisions made under a significant time, focus, or energy crunch are not good purchasing decisions, so we kick them down the road if at all possible, to a time where we have much less of a crunch on our time, focus, and energy.

Not having a crunch on time and focus and energy means that we can devote more effort and rational thought to making sure that we actually need this item and that we’re adequately researching it and shopping around for it. We’re not just rushing into Target to buy the first thing we see that solves the problem, because doing that usually results in either spending too much or getting a lower quality item for the dollar than we should be buying, and sometimes the purchase is entirely unnecessary.

We try as hard as possible to avoid sacrificing sleep. What does this have to do with frugality? A rested mind is much better at focusing and much more able to resist temptation and make better choices in the moment. During busy stretches of life, having a rested mind often makes the difference between keeping up with all of your initiatives and letting some things fall through the cracks.

Yes, absolutely, this means that there are some things that simply don’t get done. As I mentioned above, we often skip light housework during busy stretches. We often delay laundry and other such chores. We also don’t “unwind” for periods in front of the television at night. Instead, we go to bed and shoot to get eight hours of sleep (or as close to it as possible).

I know that a day is going to be good when I rise naturally, without an alarm or a child waking me. That generally only happens if I go to bed relatively early and don’t spend the last hour or two of the day “vegging out” in an exhausted state. If I rise naturally like that, the day is usually full of focused thoughts and effective handling of life’s crazy requirements.

We lean on our friends and neighbors a little. Sometimes, our children will spend a few hours at our neighbors when things are at their most crazy, giving Sarah and I a chance to regroup. Sometimes, we’ll host a pure potluck social evening and have everyone bring items for dinner because it’s an extremely time- and money-efficient way to relax and unwind a bit with friends.

Sometimes, I’ll just flat-out ask friends for help. I’ll ask a friend to pick up some books on hold at the library. I’ll ask a neighbor to grab two items for me at the grocery store. I’ll ask someone I know if they can pick up our kids after their soccer practice.

I’m able to do this without worry or guilt because we do the same things for our friends and neighbors at other times in the year. We often watch the children of our neighbors. We often run short errands for friends or add their needs to our errand list. We’ll often prepare most of a potluck meal for busy friends so they can get a low-stress meal and some good social time in. We’ll loan tools to friends. We’ll help them with projects.

Because of that, we feel no qualms at all about asking for help when things are crunched for us. It’s far better than simply throwing money at little problems or adding even more to our busy schedules or stress levels.

We accept imperfection and understand that the perfect is the enemy of the good. Sometimes, we’re going to completely fail at these initiatives. Sometimes, we’re going to pull them off, but with some serious flaws. Sometimes, we’re going to simply spend money that we really don’t need to spend simply due to our lack of organization and focus and creativity.

That’s life. It doesn’t mean that these efforts are a waste.

The thing we always keep in mind with frugal efforts is that the perfect is the enemy of the good. If the only two acceptable results are perfection and failure, your life is going to involve infinite failure. The truth is that a result that’s not perfect but largely good is far better than not trying at all.

Even more than that, accepting that “good” is more than acceptable creates an interesting new motivation. For me, I’m often motivated not by seeking perfection, but doing just a little bit better than I did the day before. I want to be just “one step better” than I was yesterday. I don’t shoot for perfection, because I’ll just get frustrated with my inevitable failure to reach perfection.

At the end of the day, frugal success in busy times happens when I keep my head clear, spread out the tasks on my plate, take care of things during less busy times, and accept imperfection. If I keep those principles front and center, busy times don’t have to mean the end of frugal practices at home. Instead, it means that frugality becomes – and remains – foundational in all of your life choices.

Good luck!

The post Putting Frugality in Context of a Busy Modern Life appeared first on The Simple Dollar.

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Seven Reasons to Love the House You Have

With spring in full swing and summer on its way, people are busy sprucing up their home’s outdoor areas. Perhaps you’ve cleaned out your garage, laid down some mulch, or attempted to repair winter damage to your lawn. Whatever hard work you’ve done, you’ll soon be able to enjoy the fruits of your labor – that is, if you can ignore what your neighbors are up to.

According to Housingwire Magazine, 40% of all U.S. home sales take place during May, June, July, and August. That means, all around the country, people are fixing up their homes for an entirely different reason altogether – to sell. And if you’re not careful, it’s easy to let the siren song of a newer, bigger, or fancier home lure you in.

Seven Reasons to Fall Back in Love With the Home You Have

While there are no hard and fast rules to dictate when you should move or upgrade and when you stay put, it’s important to think long and hard before you buy, sell, or move. The financial implications of moving are too great to take the decision lightly.

Plus, you want to make sure you’re moving for the right reasons. There are many scenarios where moving can make a lot of sense — to shorten your commute, to take a better job, to downsize, to be closer to family — but your dream house adding a beautiful, two-tier stone retaining wall and slapping a for-sale sign in the yard isn’t one of them.

If open house season has stirred up a bit of homeowner wanderlust inside you, maybe, just maybe, it’s possible to fall back in love with the home you already have. You bought it for a reason, right? Here are seven reasons your dream home might be the one you’re already living in:

#1: Home equity is sexy.

While your home may not excite you like it once did, you might want to break out your mortgage statement and take another look. If you’ve lived in your home for a decade or more – or if your home has gone up considerably in value over the past few years – you might have some serious home equity built up.

Figure out how much you owe on your home, then compare it to the estimated value offered on a site like Zillow. Do you owe a lot less than your house is worth? If the answer is “yes,” then you’ve got some home equity appeal.

While your cracking driveway, dated bathroom, or tiny kitchen may not give you something to squeal about, building real wealth is pretty darn exciting. And, that’s exactly what home equity is – real wealth that adds to your net worth.

#2: Selling a house is expensive.

Speaking of equity, selling your house is one of the fastest ways to watch it disappear. One of the biggest expenses you’ll pay to upgrade comes when you actually sell your home. Average Realtor fees are 6%, typically paid entirely by the seller, meaning you’ll fork over $12,000 to sell a $200,000 home, or $18,000 to sell a $300,000 home.

Nobody’s saying Realtors aren’t worth their weight in gold – in a major transaction like this, you need an expert on your side. What we are saying is that, if you don’t want to see a big chunk of your home equity go up in smoke, you should skip selling and avoid the expense.

#3: Moving is more expensive than you think.

While it’s easy to get tempted into upgrading your digs, let’s not forget just how expensive moving is. Not only do you have to cover the costs of buying and selling a home, but you may have to hire movers, complete repairs and upgrades to either or both homes, plus pay for new home furnishings, paint, or décor. All of these costs can add up in a big way, which makes staying put in your old home pretty attractive in a financial sense.

Fortunately, moving costs are easy to avoid if you’re selling your home on a whim. The process is simple: Stop what you’re doing, take the sign out of your yard, and relish in the savings.

#4: Less work = more fun.

While summer may be the ideal time to move, it’s also the perfect season to spend time with your family and relax. If you wind up moving for some reason, you could easily spend your summer house hunting, applying for a mortgage, painting, organizing, and cleaning instead of running around with your kids.

The bottom line: Moving is hard work, but you can avoid some of the struggle by just not doing it. And personally, I’d rather spend my summer drinking cocktails in the sun. How about you?

#5: Embrace ‘the devil you know.’

You know how they say the grass is always greener on the other side of the fence? This saying is particularly true when it comes to real estate. Why? Because every home has problems, even if you don’t find out about them until you move.

Maybe your current home isn’t quite big enough. Maybe it has an ugly kitchen. Perhaps you’re sick and tired of not having enough windows, or you hate your neighbors. Whatever your issue is, always remember that it could be worse, and that bigger, remodeled house will have its own set of problems you don’t even know about.

Your “dream home” will have its own issues, even if it takes you a while to discover them. By staying in your current home, you can continue dealing with the problems you know about instead of jumping into new ones.

#6: The memories you’ve made are priceless.

Newer, bigger, and higher-priced homes may have fancy upgrades, modern interiors, and upgraded curb appeal, but there’s one thing they don’t have – memories. No matter how hard you try, it’s impossible to replace the memories you’ve made if you brought a child home from the hospital, raised a family, or started a marriage or important relationship in a home.

You can replace your home, but you can’t replace the memories you’ve made. And by staying put, you can keep on building on the lifelong memories you have.

#7: A new home might not make you any happier.

Just as the grass is always greener, it’s easy to imagine that a new house will magically make your life better – especially if it addresses something you don’t like about your current house. But there’s some pretty compelling evidence that a new home has little impact on your overall life satisfaction.

A 16-year study tracked more than 3,600 people in Germany who moved to a new home specifically because there was something about their existing home that they didn’t like. And while those home buyers reported higher satisfaction with their homes after moving, they didn’t feel any better about their lives overall.

“We conclude that moving or living in a better home is unrelated to life-satisfaction judgments for two reasons,” wrote the study’s authors. “First, housing makes a small contribution to life-satisfaction judgments. Second, positive effects of better housing are undermined by the greater costs of living in a better home.”

The reasons a new home might make you happier have nothing to do with whether it’s nicer or more expensive, and everything to do with how you’ll spend your time. If a new home brings you closer to friends and family, or simplifies your commute, or has a backyard that lends itself to playing soccer with your kids, then, fair enough — it can make a lasting impact on your happiness.

But the boost you get from the new stone countertops or high-end appliances in your dream house is likely to be short-lived, due to the concept of hedonic adaptation. “Like any possession, its impact on happiness diminishes over time,” Yale psychology professor Ravi Dhar told the New York Times. “Things give us more joy when they are first acquired than over time, as we adapt to them.”

Elizabeth Dunn, psychology professor and co-author of “Happy Money: The Science of Happier Spending,” told the Times, “What matters for our happiness… is what we do in the minutes and hours of our day.” When shopping for a home, she said, ask yourself: “How will this purchase change the way I spend my time next Tuesday?”

The Bottom Line

While it’s easy to fall out of love with a home, there are plenty of reasons to be grateful for what you have. If your house is clean, maintained, and affordable, for example, you’re easily one of the luckiest people on Earth!

And, if your goal is getting ahead financially, steering clear of lifestyle inflation is one of the best moves you can make. While a big, fancy house might seem like a dream come true, the best house for your family is the one you can actually afford.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.


Are you moving this summer? What are some reasons you’re still in love with the home you have?

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Wednesday, May 17, 2017

The Ant, the Grasshopper, and the Child

When I was a kid, my parents had a few relatives and friends that were pretty big spenders. I had a cousin who always had the latest everything – if a new hot video game had just come out, you could rest assured that he had it. There was a friend of my father who collected trading cards and had a collection that blew away my own meager stacks. One particular friend seemed to always be driving a new car.

On the other hand, my parents were definitely more of the frugal type. We grew a lot of our own food in our large vegetable garden. We always drove older cars. We never seemed to have much money, but we never went without anything we needed.

What’s the difference? My parents were both retired by their late fifties, while most of the other people mentioned above worked until they were near their deathbeds, often at jobs that weren’t exactly ones you want to be working later in life.

Looking back, I can see the parallels between those experiences and the fable of The Ant and the Grasshopper. Here’s the full version from the Library of Congress:

One bright day in late autumn a family of Ants were bustling about in the warm sunshine, drying out the grain they had stored up during the summer, when a starving Grasshopper, his fiddle under his arm, came up and humbly begged for a bite to eat.

“What!” cried the Ants in surprise, “haven’t you stored anything away for the winter? What in the world were you doing all last summer?”

“I didn’t have time to store up any food,” whined the Grasshopper; “I was so busy making music that before I knew it the summer was gone.”

The Ants shrugged their shoulders in disgust.

“Making music, were you?” they cried. “Very well; now dance!” And they turned their backs on the Grasshopper and went on with their work.

A little dark, perhaps, but it gets the point across.

Anyway, when I was growing up, I always had this impression that the “grasshoppers” in my life were the ones to emulate. I wanted to be the person that had all of the trading cards. I wanted to be the person that had all the video games. I wanted to be the person who had the shiny new car. Those were the people who were enjoying life, I thought.

The funny thing is, I had those thoughts while I was going on a hike in the woods with my father and older brother. I had those thoughts while eating fresh garden vegetables at our dinner table. I had those thoughts when I was reading a book checked out from the library. I had those thoughts when playing checkers with my mom after school. I had those thoughts when I was listening to a baseball game on the radio with my dad on a warm summer day, as we sat out under a shade tree.

What I didn’t see is that I actually already had a wonderful, fulfilling life with my parents, the “ants.” I just didn’t always see it that way. I remember people sometimes telling me that my childhood was a lot better than I believed it to be at the time – looking back, they were right. (The only bad thing about my childhood was dealing with a bunch of health issues.)

In my twenties, I tried my absolute best to be a “grasshopper.” I bought lots of things. I had lots of experiences. I put away very, very little for the future. Instead, I spent and spent and spent. I bought into this underlying sense that I would take care of things later.

But, eventually, the summer waned. I started bumping up against credit limits. We had nothing saved for a house. Then, suddenly, we had a little baby to take care of, too, and that added a lot of child care costs to the mix.

The warmth of the summer was starting to fade, and here I was, trying to be a grasshopper, fiddling in the fading light.

So I became an ant. We paid off our debts. We started saving for the future. We started spending less than we earn. I currently drive a fourteen year old vehicle we bought off of Craigslist. We have absolutely no debt at all. We’ll likely retire even earlier than my parents did.

The thing is, I expected the life of an ant to not be very enjoyable. After all, it certainly looks like there’s much more fun to be had with the grasshopper life.

I go on hikes in the woods with my wife and children.

I eat fresh garden vegetables at our dinner table, usually with our whole family gathered there.

I read books checked out from the library, right along with my kids.

I play board games with my kids many days after school, and board games are a big part of every summer rainy day.

I listen to the radio when I’m doing something outside, or just relaxing with a book in a nice chair out there.

Sound familiar? It’s because a lot of the same notes that I hit in my childhood with “ant” parents are the same ones I’m hitting now. Why? Because those things manage to both be deeply enjoyable and fit in perfectly with an “ant” life.

I’m sure that my own children see “grasshoppers” in their life and want to emulate them. I know that some of my kids have friends where their families seem to have everything, and I hear them mention this. We have friends who are constantly traveling to interesting locales and while we do occasionally travel, we are far from jet setters.

In the end, I see three things from this analogy.

First, I find the life of an “ant” to be deeply fulfilling. The sweet music of the grasshopper is pleasant, but I find that in the activity of the ant, there is great joy to be found as well. I find a lot of joy in doing things that don’t cost much at all, like reading a book from the library or playing a strategic think-y board game (think chess). I find a lot of joy in simply building relationships and spending time with people. I find a lot of joy in making things myself and doing things myself and repairing things myself. I find a lot of joy in finding better ways to do things. All of that contributes to an overall sense of peace that comes from spending less than I earn and watching my savings for retirement build and build.

Second, the best way to encourage my own children to become “ants” is to make sure they experience the joyful aspects of the “ant” life. I find myself returning to many of the things that I enjoyed from my own “ant” childhood now that I’m an adult. Those highlights – things like playing chess or checkers or cards with my kids, reading books, spending time together as a family, growing a garden and eating that produce, making things together – are things I enjoyed as a kid, drifted away from as I tried to find my own direction, and then returned to as I began to appreciate their true value. My children, I suspect, will follow some variation on that path, eventually returning to the life routines that they found value in when they were younger. You take the best of the lessons you learn in life and mix them with your own steps (good and bad) to form your own life, and I hope that I’m giving them some good “ant” things to incorporate.

Third, it can be a struggle to avoid the music of the grasshopper when others in your life are dancing to it. As I mentioned, all throughout my childhood, I was constantly enticed by the things that the grasshoppers in my life were doing. I perceived them as having the life that I wanted to emulate because, from the outside, it looks very exciting. However, eventually I learned that having a fabulous life on the outside comes with a lot of expense and stress and challenges, and those are things that I don’t want in my life. It’s absolutely fun to live the life of a grasshopper, but in doing so, you find that you have nothing left behind for the moment when winter comes.

The life of a grasshopper may be fun, but the road to financial security and lasting inner peace is built by ants. The best part? There’s a lot of unexpected joy along that path. It’s not the kind of flashiness that you get from the grasshopper life, but it’s there and it’s deep – the kind of deep that gets passed along to younger ants.

Good luck.

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How to Choose the Best Health Savings Account

Ever since the passage of the Patient Protection and Affordable Care Act (PPACA), Americans have shown a renewed interest in health savings accounts, or HSAs. These versatile, tax-advantaged savings accounts were created for individuals and families with high-deductible health plans (HDHPs) with the goal of helping them save money to cover their own medical bills.

If your health plan helps you qualify for an HSA, you gain several important benefits. For starters, the money you invest in an health savings account is tax-deductible, meaning you can use your contributions to reduce your taxable income. Second, the money in your HSA grows tax-free until you need it for a qualified medical expense. Lastly, and more importantly, you can use your HSA funds for anything (without penalty) once you reach age 65.

That last part is why we’ve called the HSA the best retirement account you’ve never heard about in the past, and why many people max out their HSAs regardless of their anticipated healthcare expenses. If you can make it to age 65 with some or all your HSA money intact, you can access it tax-free and spend it on whatever you want, taking advantage of a triple tax break.

Health savings accounts (HSAs) may be an important part of anyone’s financial plan, but they’re not available to everyone. To qualify, you must:

  • Have a minimum health insurance deductible of $1,300 for individuals and $2,600 for families.
  • Have a plan with maximum out-of-pocket expenses capped at $6,550 for individuals and $13,100 for families.

There are limits to the amount you can contribute annually as well. In 2017, individuals are able to contribute up to $3,400 to a qualified health savings account, while families can contribute up to $6,750. Those age 55 and older can also add an additional $1,000 annually in what is known as a “catch-up contribution.”

Eight HSA Administrators, and How They Compare

While some health insurance plans have access to their own HSA, it’s also possible to choose your own. Fortunately, you have more options than ever before. According to a 2016 research report by Devenir, the health savings account market continues to grow and evolve.

In 2016, HSA assets reportedly surpassed the $34 billion threshold and the number of HSA accounts rose to 18.2 million. Devenir projects that the HSA market will exceed $50 billion in assets and 27 million accounts by the middle of 2018.

If you’re thinking of opening a health savings account, it’s important to understand the role of account “administrators.” HSAs are offered online and through banks, brokers, credit unions, and insurance agencies. These firms oversee health savings accounts and determine the fees you’ll pay for administration. They also determine where and how your money is invested, which will obviously affect your yield and long-term growth.

With that in mind, here are eight of the top health savings account administrators in 2017:

Health Savings Account Administrator Account Maintenance Fees Setup Fees Investment Options Additional Fees
Alliant Credit Union Basic accounts are free. Investment accounts are $5.95 per month. $0 Low-cost investment options available for accounts with balances above $1,000. Earn a .65% APY dividend rate on accounts worth $100 or more. Alliant Credit Union Fees
Connexus Credit Union $0 $5 Earn dividends based on account balance. Connexus Credit Union Fees
Elements Financial HSA Monthly maintenance fee is $4 unless you carry a balance of $2,500 or more. $0 Earnings based on account balance. Accounts over $2,500 can invest with TD Ameritrade. Elements Financial Fees
Health Equity Up to $3.95 per month $0 You can invest in 26 different mutual funds. Health Equity Fees
Health Savings Administrators Annual administration fee is $45. Custodial fee is $0.625 per $1,000 every three months with no cap. $0 Choose to invest with Vanguard, T. Rowe Price, and others. Health Savings Administrators Fees
HSA Bank Monthly maintenance fee is $2.50, but it's waived on balances of $5,000 or more. $0 Invest with TD Ameritrade. HSA Bank Fees
Lake Michigan Credit Union HSA $0 $0 Earn .50 APY for balances up to $5,000, and 1.0 APY for balances $5,000 or more. No other investment options are available. Lake Michigan Credit Union Fees

How to Choose a Health Savings Account

Choosing the right HSA for your family works similarly to choosing a new checking or savings account. Not only do you want an account that’s convenient to use, but you want to explore options with the lowest fees and best opportunity for return.

Ideally, you want the ability to invest your HSA funds for the long haul, so any money you don’t need to spend on near-term health issues can grow and help you in retirement. With that in mind, it’s smart to choose an HSA that offers investing options you think you’ll use. And just like your retirement account, the fees HSA administrators charge can really add up. Make sure you understand all applicable fees before you start pouring your savings into a new HSA account.

Also make sure you ask plenty of questions about access. Will your new HSA account offer a debit card, for example? Will you be able to manage your account online? Is it easy to reimburse yourself for qualified medical expenses? All of these factors can play a huge role in which account works best for your needs.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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Tuesday, May 16, 2017

A Simple Guide to Getting Maximum Value from Your Credit Cards

Sometimes, the simplest questions are just perfect.

How do people even use credit cards without messing everything up?

A reader we’ll call Jean sent that to me at the start of a question for the reader mailbag. Afterwards, Jean offered up a pretty typical story of credit card use: relying on it for purchases, gently inflating one’s lifestyle, losing track of what’s actually going onto the card, and suddenly facing big bills.

Jean isn’t alone. In America, 38.1% of households carry some kind of credit card debt and the average credit card debt for a family carrying a balance is a whopping $16,048. That’s approximately four months of take-home pay for the average American family, and given the average interest rate of just over 15%, the average American household will be paying approximately $640 a month for the next fourteen years to get rid of that debt.

Many, many articles and books have been written about how to get rid of a mountain of credit card debt. Here’s my own guide to building a debt repayment plan, for starters.

However, not as many articles focus on using credit cards smartly and effectively to get maximum value out of them. Why? It’s much easier to simply advise people to just not use credit cards at all. After all, we can live without them – you can use your debit card for most purchases and living within your means is a lot easier if you’re just using your checking account.

This brings us right back to Jean’s question. How do people even use credit cards without messing everything up?

Many years back, I racked up quite a lot of credit card debt, and in the following years, I’ve paid it all off. I currently make most of my purchases with a credit card and I haven’t carried a balance in many years (aside from a couple mistakes due to automatic bill pay shenanigans that I should have been watching more carefully and corrected as soon as I found them). I use a credit card many times per month and I have not actively carried a balance in several years.

How do I do that? Here are the “secrets” of getting maximum value from credit cards.

First and foremost, if you think to yourself, “I can’t afford this, but I could put it on the card,” then you shouldn’t be buying that item. Credit cards are not “free money you can pay back later,” so don’t treat them like that. This is absolutely the first rule of smart credit card use. They’re not free money. Don’t think of them as free money. They are not a tool to leverage purchases you wouldn’t otherwise be able to afford. Period.

If the purchase you’re considering is an absolute need, then you’ve either made some other spending mistakes to put yourself in that position or you’re walking such a tight financial rope that you need to be considering some significant life changes outside of credit card use, such as cutting some major expenses (like moving somewhere cheaper or eliminating a car) or getting a better job or an additional one. Credit cards should not finance your lifestyle, ever. If you buy things on your card that you can’t pay out of pocket, you will wind up in a financial mess.

The challenge with credit cards is that it can be very easy to disconnect the money in your checking account from the expenses you put onto that card because the impact of that expense doesn’t show up in your checking account immediately. If you buy something with a debit card, your checking account balance goes down immediately. On the other hand, if you buy something with a credit card, you have the item and your checking account balance doesn’t change.

This creates a disconnection problem. It can give a strong sense that the item or experience that you bought with the credit card was somehow “free,” which somewhat disconnects you from the actual expense of things. At the same time, it makes a credit card bill feel very separated from the actual things you bought to incur that bill. Rather than feeling like you’re paying back Amazon for the thing they already shipped to you, it can feel like Amazon gave you that item and you’re actually paying Chase for the privilege of using a card, which can feel frustrating and meaningless. No one relishes writing a check to the bank.

Most successful credit card users figure out some way to bridge that disconnect, and there are a lot of tools for doing this.

Start with separating “needs” and “wants.” Many people stumble at this step by either not bothering at all or by not really thinking about it. The point of this is to really assess the money you spend on needs so you can see how much is actually left for wants and then base your spending going forward on that.

The trick is knowing how to separate the two. For example, most groceries probably fall under “needs,” but eating out falls under a “want.” Housing falls under a “need” unless you can obviously and easily move to somewhere cheaper, in which case part of your housing cost is a “want.” If you commute, a basic car is a “need,” but an expensive car is mostly a “want.” Netflix is a “want.” Cable television is a “want.” Soda is a “want.” Alcohol is a “want.” Unless you work from home and it’s necessary, internet is a “want.”

Why is this distinction so important? Most people really don’t recognize how much money per month they spend on “wants.” They just get used to unnecessary expenses and, in their mind, gradually begin to shift things like eating out into the “needs” category and allow their “wants” to keep inflating. When you never step back and look at how much of your monthly expenses are made up of “wants,” you never really see how rich and full your life really is.

Go through your bank statement and credit card bill for the last month and separate everything into “needs” and “wants.” One good way to do this is to use a pink highlighter for “needs” and a blue one for things that are mixed; leave “wants” blank. Go on, do this, and then come back. I’ll wait.

Got it? Good.

You probably noticed that there are a TON of things on there that are “wants” when you’re honest with yourself and many more are mixed bags. There are likely few expenses on there that are truly “needs.”

Now, spend a minute and go through all of those “wants.” Think about how much you actually spend on just adding a bit of momentary pleasure to your life. Meals eaten out. Cable. Internet. A bigger house than you need. A nice car. Alcohol. Snacks. Entertainment items. Excess clothes. Premium household items. On and on and on.

The purpose of this little experiment isn’t to point out that you’re overspending, but that you already have an incredibly rich life, probably one in which you don’t have nearly enough time to follow up on all of the pleasures already available to you. How many series and movies are in your Netflix queue? How many unread books are on your shelves? How many barely-worn items of clothing are jammed into your closet? How many cool projects are stowed away somewhere? How many things have you wanted to do and bought the stuff for, but then realized you just didn’t have the time?

What does this have to do with credit card use? It’s simple. It is very hard to use a credit card effectively if you truly believe you don’t have “enough” in your life already and that you really need or deserve “more” to feel happy. If the idea of simply putting a cap on all of these pleasures in your life seems difficult or hard or deeply unappealing, then it is going to be very hard to use a credit card responsibly.

If that describes your feeling about life, ditch the credit cards for a while. A credit card in the hands of someone with those kinds of feelings about their life is a dangerous tool, indeed. It’s basically a recipe for consumer debt.

If you can see the abundance that your life already has to offer, the next step is to put a firm limit around those wants. Cut back on some of those wants that come in the form of a monthly bill if possible, and then put some caps on your spending on those other things. Eat out a little less frequently and maybe at cheaper places. Stay in for movie night a couple nights a month instead of going out.

The strategy that has truly worked well for me is to put a strong cap on all of my incidental spending each month. If I’m buying something that isn’t necessary and isn’t directly discussed with my wife, it counts toward my monthly “hobby spending” limit. I track this by keeping a running tally in my pocket notebook – if it’s an incidental purchase, I either write it down immediately or stick the receipt in there to write down later. If I slip up and “go over” for the month, then I carry it forward to next month.

Everyone’s budget is different, so I won’t set a specific dollar amount for you. Some people have rent, others have a mortgage, and others own their home. Some people are facing car payments, while others are not. Some people are pushing hard for their savings goals, while others have them a little more on the back burner. Some are paying off student loans, while others are not. Some live in a high cost of living area, while others live in a low cost of living area.

The only rule that applies here is to give yourself enough so that it feels like breathing room and freedom, but not enough that you’re going to continue down a path of financial trouble.

The real goal here isn’t the limit. The real goal is to make you stop and think about your non-essential purchases and ask yourself whether they really add value to your life. Every single time you pull out that credit card, that question should be on your mind. “Does this really add value to my life? Does it add enough value to be a part of that incidental spending limit for the month?”

This is the single most important thing you can do when it comes to credit card use. Be mindful of everything you put on there and set some reasonable limits for yourself so that you don’t inadvertently overspend. If you do that, you’ll avoid the vast majority of credit card problems.

In the end, the best way to get maximum value out of your credit card is to exhibit self control. If you’re purchasing more than you can afford with the aid of a credit card, eventually you’re going to be facing down a mountain of debt with hundreds of dollars of interest accrued per month.

If you’re consistently spending within your means, you’ll soon reach a point where there is always more than enough in your checking account to pay off your credit card in full each month – and that’s exactly what you should do.

Another thing worth considering is choosing the right credit card. In general, it’s not all that useful to have lots of different credit cards, because you’re adding management effort and identity theft risk with every card you add. (There are some strategies that involve using lots of credit cards, but that’s a separate topic entirely and it’s a strategy that can easily backfire if not played carefully.) Instead, it’s a good idea to just have one or perhaps two cards that are carefully chosen to maximize value.

The most effective way to do that is to choose a card or pair of cards that offers you maximum benefit for the retailer(s) you use the most while still offering some benefit elsewhere. In other words, you want a Visa or MasterCard or American Express card that you can use at other locations besides your primary retailer, but the card offers really strong benefits associated with that retailer.

Cards like this are generally not listed among the “best” credit cards because, frankly, they’re hard to evaluate and they’re different for each person. Cards that are mentioned among the “best” cards are the ones that offer the best benefits without association with a particular retailer, but if you do a large portion of your shopping through a single retailer or two, a card associated with that retailer is going to be a tremendous bargain.

Let’s say, for example, that you shop at Target quite frequently, doing your grocery shopping and household shopping there. The Target REDCard Mastercard gives you 5% off all of your purchases there. A Costco credit card gives you 4% off all gas bought at Costco and 2% off of all other purchases there (and 3% off of restaurants and other specific purchases), so if you buy gas at Costco, it’s pretty hard to beat that for a fee-free card, especially if you commute. If you shop on Amazon a lot for household supplies and nonperishable foods and have an Amazon Prime account, the Amazon Visa gives you 5% back on all of your Amazon purchases in the form of Amazon credit.

Those discounts are really hard to beat in terms of a general purpose card. You can beat them with some introductory offers if you jump through lots of hoops, but those introductory offers rarely translate into lasting benefits.

What if you can’t clearly name a preferred retailer? If that’s the case, then one of the best rewards credit cards makes sense.

What about APR? Here’s the thing – if you are using a credit card effectively and getting maximum value from it, the interest rate does not matter because you’ll never be paying it. Interest rates on credit cards only matter if you carry a balance from month to month, and if you’re carrying a balance from month to month, you’re already not getting the maximum value from your credit card.

In summary, the cornerstones of successful credit card use are mastering where your money goes, consciously limiting non-essential spending, using a sensible card, and paying it off in full each month. If any of those cornerstones fail, then you aren’t getting maximum value out of using a credit card. If multiple ones fail, then you’re better off using your checking account and debit card to pay for your expenditures, because your credit card is definitely costing you money.

Good luck!

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